DBRS Ratings GmbH (DBRS Morningstar) finalised its provisional ratings of AA (sf) on the Class A1 and Class A2 Notes issued by Quarzo S.r.l. (the Issuer). DBRS Morningstar does not rate the Class B Notes issued in this transaction.
The transaction represents the issuance of the Class A1, Class A2 and Class B Notes backed by a portfolio of approximately EUR 900 million of receivables related to unsecured consumer loan contracts granted by Compass Banca S.p.A. (the originator) to individual residents in Italy. The originator will also service the portfolio.
The transaction includes a six-month revolving period, starting in December 2019, during which time the originator may offer additional receivables that the Issuer will purchase provided that eligibility criteria and concentration limits set out in the transaction documents are satisfied. The revolving period may end earlier than scheduled upon occurrence of certain events, including breach of performance triggers, insolvency of the originator and replacement of the servicer.
The transaction allocates payments on a combined interest and principal priority and benefits from a EUR 3.9 million liquidity reserve funded on the issue date with part of proceeds of subscription of Class B Notes. The liquidity reserve can be used to cover senior costs and interest on Class A1 and Class A2 Notes but cannot be used to offset losses.
At the end of revolving period, the notes will pay on fully sequential basis with senior notes paid first. The Class A1 and Class A2 Notes rank pro-rata and pari passu. They pay interest indexed to three-month Euribor whereas the portfolio pays fixed-interest rate. The interest rate risk arising from the mismatch between the Issuer’s liabilities the portfolio is hedged through an interest rate swap with an eligible counterparty.
The ratings address the timely payment of interest and ultimate repayment of principal by the legal final maturity date, in accordance with Issuer’s default definition provided in the transaction documents.
The ratings are based upon DBRS Morningstar’s review of the following analytical considerations:
-- The transaction capital structure, including form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS Morningstar’s projected expected net losses under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms of the
-- The seller, originator and servicer’s capabilities with respect to originations, underwriting, servicing and financial strength.
-- DBRS Morningstar’s operational risk review of Compass Banca S.p.A.’s premises where it deemed it to be an acceptable servicer.
-- The appointment upon closing of a backup servicer and its capabilities with respect to servicing.
-- The transaction parties’ financial strength with regard to their respective roles.
-- The credit quality, diversification of the collateral and historical and projected performance of the seller’s portfolio.
-- DBRS Morningstar’s sovereign rating of the Republic of Italy at BBB (high) with a Stable trend.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology, the presence of legal opinions that address the true sale of the assets to the Issuer and non-consolidation of the Issuer with the seller.
The transaction cash flow structure was analysed in Intex DealMaker.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is “Rating European Consumer and Commercial Asset-Backed Securitisations”.
DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” methodology at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.
The data and information used for these ratings include performance data relating to the receivables provided by the originator directly or through the arranger, Mediobanca – Banca di Credito Finanziario S.p.A.
DBRS Morningstar received data from Q1 2009 to Q2 2019 relating to quarterly static default and delinquency rates, quarterly static recovery data, quarterly static prepayment data, and dynamic delinquency and prepayment data. DBRS Morningstar also received a set of stratification tables in relation to the loan pool as of 9 October 2019 and its related contractual amortisation profile.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
These ratings concern newly issued financial instruments. These are the first DBRS Morningstar ratings on these financial instruments.
This is the first rating action since the Initial Rating Date.
Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):
-- Probability of Default (PD) Used: Expected PD of 5.6%, 23% for an AA (sf) scenario, a 25% and 50% increase on the applicable PD.
-- Recovery Rate Used: Expected recovery rate of 21%.
-- Loss Given Default (LGD) Used: Expected LGD of 79%, 84.5% for an AA scenario, a 25% and 50% increase on the applicable LGD.
Scenario 1: A 25% increase in the expected default.
Scenario 2: A 50% increase in the expected default.
Scenario 3: A 25% increase in the expected LGD.
Scenario 4: A 25% increase in the expected default and 25% increase in the expected LGD.
Scenario 5: A 50% increase in the expected default and 25% increase in the expected LGD.
Scenario 6: A 50% increase in the expected LGD.
Scenario 7: A 25% increase in the expected default and 50% increase in the expected LGD.
Scenario 8: A 50% increase in the expected default and 50% increase in the expected LGD.
DBRS Morningstar concludes that the expected ratings under the eight stress scenarios are:
-- Class A1 Notes: A (high) (sf), A (sf), AA (low) (sf), A (sf), BBB (high) (sf), AA (low) (sf), A (sf), BBB (high) (sf)
-- Class A2 Notes: A (high) (sf), A (sf), AA (low) (sf), A (sf), BBB (high) (sf), AA (low) (sf), A (sf), BBB (high) (sf)
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Ilaria Maschietto, Assistant Vice President, Global Structured Finance
Rating Committee Chair: Christian Aufsatz, Managing Director, Head of European Structured Finance
Initial Rating Date: 7 November 2019
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.
-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.